Steve owns 3,000 shares of NOP,Inc.stock,which he purchased six years ago at a price of $22 a share.Today,these shares are selling for $68 each.Assume the current tax laws are such that Steve is subject to a tax rate of 25 percent on both his dividend income and his capital gains.From Steve's point of view,a stock repurchase today: (Ignore costs)
A)is equivalent to a cash dividend in all respects.
B)is more desirable than a cash dividend in respect to taxes.
C)will result in the same tax liability as an equivalent cash dividend.
D)is more highly taxed than a cash dividend.
E)is totally unacceptable to him.

Question

Quizplus · Accepted Answer

A stock repurchase can be more tax-efficient than a cash dividend because the investor has control over when to sell the shares and realize capital gains, potentially deferring taxes or paying them at a lower rate.

Steve Owns 3,000 Shares of NOP,Inc